Despite Climate Goals, Indian Banks Invested $29 Billion in Coal Projects Between 2016-2023: Report

New Delhi: It’s risky both market- and environment-wise, but Indian banks are still fanning the fire: they continue to consistently fund fossil fuels such as coal, according to a recent report by Bengaluru-based think tank Climate Risk Horizons. Between 2016 and 2023 alone, banks including the State Bank of India and ICICI have funded a staggering $29 billion, or around Rs 2,900 crores, worth of coal projects.

With the increasing impacts of climate change like extreme heat waves and intense bouts of rainfall, calls to reduce fossil fuel use – which emit high levels of carbon dioxide into the atmosphere and aggravate these climate impacts – are rising worldwide. 

Energy transition – the move from non-renewable and extremely polluting fossil fuels such as coal to cleaner fuels such as solar power – is a word that now appears in all energy, sustainability and climate change lexicons today. 

However, studies and reports such as this one, for instance, have identified that subsidies and loans disbursed for coal-based power generation, and industries that rely on it as an energy source, are a huge concern and take the momentum away from a quicker path to energy transition.

According to the report published on June 25 by Climate Risk Horizons, an organisation that studies and analyses financial and economic risks caused by climate change, leading Indian banks are fuelling this fire.

Between 2016 and 2023 alone, Indian banks funded a staggering $29 billion worth of coal projects. Of this amount, the banks disbursed approximately $15.2 billion as coal loans, and $13.5 billion in coal underwriting services (a process that involves a guaranteed repayment and thus helps mitigate the risks of a financial transaction). The report found that underwriting has become an important part of financing coal, both nationally and globally. This is a concern, the report’s authors said.

“Underwriting coal might look cleaner than direct lending, but this backdoor support delays India’s clean energy transition and makes the path to net zero more difficult. Banks are starting to acknowledge the financial harm climate change is causing to their portfolio, while simultaneously supporting the climate-destroying coal industry despite proven, financially viable clean energy alternatives,” said Anusha Das, a co-author of the report, in a press statement.

Roughly 2.3% of total global coal financing between 2021 to 2023 came from India, making it one of the top 7 countries contributing to coal financing during this period, the report noted.

Per the report, public banks in India provided about 75% of the total coal loans while private banks financed around 83% of the total underwriting. The State Bank of India (SBI) and private lenders like Axis Bank and ICICI Bank were among the leading coal financiers. The Federal Bank, RBL Bank, and Suryoday Small Finance Bank are the only banks that have adopted a coal exclusion policy, per the report.

Funding coal is also risky for banks – and yet, they still do it. The report found that several factors – including the declining prices of renewables (Rs 2-3/kWh versus coal’s Rs 4.39/kWh), and stricter environmental scrutiny – make direct coal financing risky. 

Per the report, major Indian and foreign investors such as HDFC Mutual Funds and ICICI Prudential also lost an estimated $3 billion in foregone earnings between 2016 and 2020 because of the underperformance of coal sector stocks.

“Continuing to finance coal expansion under the pretext of energy security ignores economic reality: new coal investments are increasingly unprofitable and risky, and weaken India’s ability to compete in a global economy that is seeking to decarbonise. 

Indian banks must urgently adopt coal phase-out policies and proactively shift to renewable investments in the interests of energy security, financial stability, and the country’s future growth,” said Sagar Asapur, co-author of the report, in a statement.

Banks can accelerate India’s move to cleaner energy sources by funding solar and wind power manufacturing, battery manufacturing and financing the deployment of grid-scale storage projects, the report said. 

“Without a clear coal exclusion policy, banks risk exacerbating financial instability, missing out on the opportunity cost of renewable investment opportunities, and lagging behind global financial trends. Major Indian banks that have failed to act on the coal front must adopt a transition plan to phase out coal investments and redirect finance to renewable energy,” the report recommended.

As part of its most recent (August 2022) Nationally Determined Contributions (NDC), India has promised to reduce the emissions intensity of its Gross Domestic Product by 45% from 2005 levels by the year 2030, and achieve about 50% cumulative non-fossil fuel electric power by 2030.

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